Climate experts have released a new report warning that including oil and gas in Canada’s federal sustainable investment guidelines could weaken the credibility of the country’s climate finance framework.
The guidelines, known as a sustainable finance taxonomy, are intended to help private investors and governments identify investments that support climate action.
The report, titled “The Taxonomy Fossil Fuel Conflict: Why Oil and Gas Inclusion Would be Counterproductive,” argues that adding fossil fuels to the taxonomy would be difficult to manage, scientifically flawed and vulnerable to loopholes.
Report Says Fossil Fuels Should Not Receive a Sustainable Finance Label
The report was published on credibletaxonomy.ca and builds on earlier work by Environmental Defence, which has argued that fossil fuels should not be included under a sustainable finance label.
A sustainable finance taxonomy is expected to function as a voluntary tool. It would help investors and governments determine whether specific investments align with climate goals and the transition to a low-carbon economy.
However, the new report argues that oil and gas activities do not fit within such a framework if the taxonomy is meant to reflect credible climate science.
Taxonomy Must Align With 1.5-Degree Climate Goals
According to the report, Canada’s taxonomy should clearly identify projects that are genuinely compatible with limiting global warming to below 1.5 degrees Celsius.
To maintain credibility, experts argue that the taxonomy must be free from fossil fuel investments.
The report says the taxonomy is not the right policy tool to manage emissions from the oil and gas sector. Instead, it should be used to guide capital toward investments that clearly support a rapid and stable energy transition.
Experts Warn of “Gameable” Loopholes
The report describes the inclusion of fossil fuels as potentially “gameable,” unworkable and misguided.
A key concern is that oil and gas companies may be able to use narrow emissions-reduction claims to qualify for sustainable finance labels, even though the broader production and use of fossil fuels continue to drive climate change.
The report states that downstream emissions from burning oil and gas make up the largest share of the sector’s emissions and are the single biggest cause of climate change.
For a safer climate and more stable economy, the report argues that both fossil fuel production and combustion must decline.
Global Economies Are Moving Away From Fossil Fuels
The report also points out that many countries are already shifting their economies away from fossil fuels.
Countries such as France and Brazil are not only working to reduce emissions from fossil fuel use but are also moving toward economic models that rely less on fossil fuels altogether.
Experts argue that Canada should follow a similar direction if it wants its taxonomy to be internationally credible.
Environmental Defence Says Taxonomy Should Clarify, Not Confuse
Julie Segal, Senior Manager of Climate Finance at Environmental Defence Canada, said giving a positive sustainability label to oil or gas investments would create confusion instead of clarity.
She said the purpose of a taxonomy is to allow science to guide financial decision-making, not to let today’s economic structures limit tomorrow’s climate choices.
Segal added that after several attempts to develop sustainable finance guidelines in Canada, the country must get it right this time.
Scientific Accuracy Seen as Essential
Segal said the taxonomy will only be useful if it is scientifically accurate, clear and unbiased.
She also noted that the federal government has indicated it may use the taxonomy as a foundation for future government bond issuances.
Because of that, Segal said it is especially important that the taxonomy categories point Canada toward a fast, reliable and stable energy transition.
Investors Concerned About Greenwashing Risks
Jessica Carradine, author of the report, said a taxonomy that allows fossil fuels would be difficult for investors to trust.
She said Canadian investors are already highly aware of greenwashing risks and want a gold-standard taxonomy that carries global credibility, similar to the approach used in Australia.
Carradine added that because the taxonomy is voluntary, its greatest value lies in how accurately it reflects credible net-zero pathways.
Background: Canada’s Sustainable Finance Taxonomy
Many countries have created sustainable finance taxonomies to clarify which economic activities are aligned with global climate commitments.
Canada launched the process for its own sustainable and transition taxonomy in 2025.
Earlier efforts to advance the taxonomy were slowed by concerns about greenwashing and whether fossil fuel activities would be included.
Public Consultation Begins July 9, 2026
Public consultation on Canada’s taxonomy is scheduled to begin on July 9, 2026.
The newly released report is intended to provide analysis on why oil and gas activities should not be part of the taxonomy.
It argues that including fossil fuels would reduce clarity, damage credibility and weaken the taxonomy’s usefulness for investors and governments.
Taxonomy May Support Future Green and Transition Bonds
The federal government has said it intends to issue sovereign green and transition bonds based on the sustainable finance taxonomy.
This makes the taxonomy especially important because it could influence how public financing is directed in future years.
If fossil fuels are included, critics argue that Canada risks weakening the credibility of its sustainable finance system and increasing greenwashing concerns.
Other Climate Finance Policies Also Needed
The report notes that a taxonomy alone is not enough to align Canada’s economy with its climate commitments.
Other climate-related financial policies are also necessary to protect the economy from climate-related damage.
As recommended by the House of Commons Environment Committee, these measures include mandatory climate transition plans for large private companies and the implementation of the Climate-Aligned Finance Act, introduced by Senator Rosa Galvez.